Howard Building Centre v. Thornton

Richard B. Adkisson, Chief Justice. Appellees, the Thorntons, hereinafter owners, entered into a contract with Tubb, hereinafter contractor, to build them a home. Appellant, Howard Building Centre, Inc., hereinafter materialman, supplied $10,535.20 in building materials used in the construction of the home. The owner paid the contractor for the materials, but the contractor failed to pay the materialman who brought suit claiming a lien against the premises under Ark. Stat. Ann. § 51-601 (Repl. 1971). The trial court dismissed the complaint, holding the materialman’s claim was barred by the doctrine of equitable estoppel for the reason that, unbeknown to the owner, the materialman and the contractor had entered into a secret agreement whereby all payments made to the materialman by the contractor would be applied to past due accounts without regard to the account to which the money rightfully should have been applied. On appeal we affirm. Initially, the materialman contends that the trial court erred in applying the doctrine of equitable estoppel to bar it from enforcing its materialman’s lien. The materialman bases this argument on the fact that equitable estoppel is an affirmative defense which must be affirmatively pled. The doctrine was first mentioned in the trial court’s decree, but the materialman failed to object in the trial court to the wording of the decree. Arkansas Rules of Civil Procedure Rule 46 requires that at the time an order of court is made a party make known to the court the action which he desires the court to take or his objection to the action of the court and his grounds therefor. In any event the rule requiring equitable estoppel to be affirmatively pled disappears when facts regarding estoppel are admitted in evidence or become an issue in the case without objection. Aclin v. Caplener, 229 Ark. 718, 318 S.W.2d 141 (1958). Testimony established that the owners had no personal knowledge of the secret agreement. The owners could not be expected to plead a defense of which they were unaware. The materialman first disclosed the fact of the secret agreement at trial. It was not necessary to make an affirmative pleading on the matter. The materialman next argues that if equitable estoppel is to be considered, there was insufficient evidence presented at trial to sustain this defense. The principle of equitable estoppel is that a party who by his act or failure to act when he should, either designedly or with willful disregard of the interest of others, induces or misleads another to change his position to his detriment is estopped to assert his right afterwards. Williams v. Davis, 211 Ark. 725, 202 S.W.2d 205 (1947). In Long-Bell Lumber Company v. Auxer, 221 Ark. 672, 255 S.W.2d 163 (1953), we held: Our rule is well settle that in circumstances such as are presented here, if Long-Bell knew, or by the exercise of reasonable diligence, or care, should have known the source of the money which Auxer paid to it, then it was obligated to credit the Heburn job therewith. In applying this legal principle to the facts of this case, it is apparent that the owners had no knowledge of the agreement, and if such agreement had been disclosed, they would have had the opportunity to protect their interests. The materialman, by entering into the secret agreement, certainly knew from the terms of the agreement that payment from the contractor was not going to be applied to the accounts on which payment was received. Yet he applied the payments to these accounts to the detriment of the owners in order to curry the favor of “some doctors and lawyers that could really do him [contractor] a lot of damage.” Here, the materialman is estopped from enforcing the lien by entering into an agreement which prohibited him from exercising any discretion or care in the matter. The proof regarding the secret agreement is undisputed. Therefore, we affirm the trial court’s application of equitable estoppel. We affirm. Hickman, J., concurs; George Rose Smith, Purtle .and DudLey, JJ., dissent.